Wednesday, March 10, 2010

Unreasonable Scold

by digby

David Walker of the Peterson Institute was on NPR's Fresh Air yesterday, blowing smoke like crazy about deficits I don't know if he's deluded or dishonest, but either way his "Very Serious Person" routine is a disaster for the economic future of this country. It all sounds so reasonable, you see. Just like any household, the government can't survive on borrowed money. So we need to tighten our belts.

That's not to say we should end any of these wonderful entitlement that are going to put your children into forced labor camps. But adjustments must be made. And we should even raise taxes (except those that would impede investment and growth of course)on everyone. And some people are going to have to lower their expectations about retirement and elderly health care because we just can't afford it. Again, those who don't need the money will evidently continue to invest in produ8ctive ways, so we can't ask them to pay higher taxes. They are the engine of our growth. It's the "American people" who have to sacrifice:

Mr. WALKER: There's no question that people are frustrated with their elected officials and they're complaining about their elected officials, but we also have a societal problem. People are very short-term oriented. They want what they want, they want it now; they dont want to have to pay for it. That doesnt work. And so, as a result, we need to recognize the reality that if you want government to be able to do certain things, you have to be willing to pay for it. And that ultimately, if you dont pay for it today, your children and grandchildren are going to pay for it, with interest, tomorrow.

And so, we need to have an honest discussion and debate with the American people about how much government do they want and how much are they willing to pay for, and we have to reconcile the gap. And that hasnt been done, but it needs to be done.

Right. My entire generation just took the biggest financial hit since the Great Depression at a time when they probably can't make it back. Their dreams of cushy retirement went in the same toilet that DOW 36,000 and credit default swaps were flushed down. Yes, they were probably stupid. Most humans are. But the idea that they have to be "willing to pay" really comes down to being willing to sacrifice promised benefits they spent their whole lives paying for their own parents to have.

I suppose we deserve it. But there's an awful lot of people in this age group and if they are old, poor and sick it's hard to see how they don't burden this economy even more. Not to mention that it's pretty heartless.

Dean Baker delivered a strong antidote to deficit fever in this piece last month, which I recommend you read in its entirety:

The country faces a serious crisis in the form of a manufactured crisis over the budget deficit. This is a crisis because concerns over the size of the budget deficit are preventing the government from taking the steps needed to reduce the unemployment rate. This creates the absurd situation where we have millions of people who are unemployed, not because of their own lack of skills or unwillingness to work, but because people like Alan Greenspan and Ben Bernanke mismanaged the economy.

The basic story is very simple and one that we have known since Keynes. We need to create demand in the economy. The problem is that as a society, we are not spending enough to keep the economy running at capacity. Prior to the collapse of the housing bubble, the economy was driven by booms in both residential and non-residential construction. It was also driven by a consumption boom that was in turn fueled by the trillions of dollars of ephemeral housing bubble wealth.

[...]

The answer in this situation should be simple: more stimulus. But the deficit hawks have gone on the warpath insisting that we have to start worrying about bringing the deficit down. They have filled the airwaves, print media, and cyberspace with solemn pronouncements about how the deficit threatens to impose an ungodly burden on our children.

This is, of course, complete nonsense. Larger deficits in the current economic environment will only increase output and employment. In other words, larger deficits will put many of our children's parents back to work. Larger deficits will increase the likelihood that parents can keep their homes and provide their children with the health care, clothing and other necessities for a decent upbringing. But, the deficit hawks would rather see our children suffer so that we can have smaller deficits.

The story is that we are forcing people to be out of work -- unable to properly care for their children -- because people like billionaire investment banker Peter Peterson and his followers are able to buy their way into and dominate the public debate. The reality is that we have an unemployment crisis today, not a deficit crisis. The only crisis related to the deficit is that people with vast sums of money (i.e. the people who wrecked the economy) have been able to use that money to make the deficit into a crisis.

The problems with medicare are clear, but it's not because it's medicare, it's because of health care inflation over all. That's one reason why health care reform is necessary. Walker's answers to that problem are things like means testing Medicare part B and electronic records all of which are neat ideas that will not do much in and of themselves. What he doesn't cop to now is what he said two years ago:

News flash. The government has no money. The government is running huge deficits it's tens of trillions of dollars in the hole in real accounting on an accrual basis and if there's one thing that can bankrupt America, it's health care and we're going to have to make choices --- and one of the choices we have to make is how do we ration, rationally.

I'm guessing he's not going to suggest that millionaires be forced to use their ration coupons. What he wants to do is institutionalize our current system of rationing --- by ability to pay.

And as for social security, the solvency of which he and the rest of the fiscal scolds just lie about, he wants to begin to substantially lower guaranteed benefits while creating some kind of new IRA, as if that will solove the problem for people who are out of work or underpaid.

And what's next on his agenda? Public sector pensions:

Mr. WALKER: The states have their own fiscal problems, and they're going to need to restructure what they do and how they do business, and in many cases the states have also grown larger in government employment levels than they should be, and they've also made promises with regard to their pension and health care programs that are much more lucrative than people get in the private sector, and taxpayers are not going to stand for higher and higher taxes to be able to pay for benefit programs that are much better than the average American gets.

I think that's a really neat trick. Tell everyone they have to lower their expectations because social security is going broke (which it isn't) and then tell the people who have good pensions that they have to give them up because everyone else has as bad one. It's collectivism gone bad.

In fact, the entire Peterson strategy is to pit the have nots against the have even lesses. It's a nice bit of misdirection, and if it works it will be a huge boon for people with money who will continue to see their incomes rise exponentially while everyone else fights over their scraps.

And if you want to read a really provocative essay on deficits by James Galbraith, who Walker called "out of touch with reality" in his interview, click here.